Research Team at Societe Generale, suggests that the key driver of the recent gold rally has, in our view, been the dramatic change in the market’s expectations for US monetary policy. Key Quotes “The market’s view of the probability of a 25bp Fed rate hike by December 2016 changed from close to 100% at the beginning of the year to as low as 20% in late February. While the recent turmoil in financial markets has made the Fed reluctant to hike rates further in the near term, the tight labour market and resilient core inflation are likely to cause the Fed to deliver a 25bp hike before year-end, followed by several hikes in 2017 according to our economists. The US dollar should find some support from the prospect of another Fed rate hike later this year, when other major central banks are expected to keep their monetary stances extremely lax. We consider the recent sharp rally in the gold price to be unsustainable, as the gold price has historically tended to have a broad inverse relationship with the value of the US dollar. This is partly because the gold price is traded in US dollars and partly because the US dollar tends to strengthen when US short-term interest rates are rising.” For more information, read our latest forex news.